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A STUDY ON CREDIT RISK MANAGEMENT

AT CORPORATION BANK
Synopsis submitted in partial fulfilment of the requirements for the award of the degree of

Master of Business Administration


OF
BANGALORE UNIVERSITY

BY
SHABREEN SULTANA
(REG-NO: 16JQCMD025)

Under the Guidance of


Dr. Vinaya T

Associate Professor and Deputy Director

City College Jayanagar


BANGALORE UNIVERSITY
2016-2018
I. INTRODUCTION

Credit risk is defined as the potential that a bank borrower or counterparty will fail to meet
its obligations in accordance with agreed terms, or in other words it is defined as the risk that
a firm’s customer and the parties to which it has lent money will fail to make promised
payments is known as credit risk. The exposure to the credit risks large in case of financial
institutions, such commercial banks when firms borrow money they in turn expose lenders
to credit risk, the risk that the firm will default on its promised payments. As a consequence,
borrowing exposes the firm owners to the risk that firm will be unable to pay its debt and
thus be forced to bankruptcy.

In recent days, people are becoming more aware about the management of their resources.
As the banks do business by lending their depositors' money, they are more responsible to
manage their credit portfolio smoothly. Bank's reputation is a critical factor for its success
and therefore multinational banks must follow appropriate guidelines, policies and relevant
manuals regarding credit extension and recovery. The usage of banking service for any type
of financial activities is increasing day by day. People are taking loans to start different types
of businesses as well as other purposes. It is now very important to know the internal credit
processes of the banks.

The goal of credit risk management is to maximize a bank’s risk adjusted rate of return by
maintaining credit risk exposure within acceptable parameters. Bank need to manage the
credit risk exposure inherent in the entire portfolio as well as the risk in individual credit or
transactions. Bank should consider the relationship between credit risk and other risk. The
effective management of credit risk is a critical component of a comprehensive approach to
risk management and essential to the long-term success of any banking organization.

Credit risk management is the practice of mitigating losses by understanding the adequacy
of a bank’s capital and loan loss reserves at any given time – a process that has long been a
challenge for financial institutions.

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Corporation Bank is a public-sector banking company headquartered in Mangalore, India.
The bank has a pan-Indian presence. Presently, the bank has a network of 2,440 fully
automated CBS branches, 3,040 ATMs, and 4,724 branchless banking units across the
country.

Nationalised in 1980, Corporation Bank was the forerunner when it came to evolving and
adapting to the financial sector reforms. In 1997, it became the Second Public Sector Bank
in the country to enter capital market, the IPO of which was over- subscribed by 13 times.
the Bank has many " firsts " to its credit - Cash Management Services, Gold Banking, m-
Commerce, " Online " approvals for Educational loans, 100% CBS Compliance and more
recently, its pioneering efforts to take the technology to the rural masses in remotest villages
through low-cost branchless banking - Business Correspondent model. All of which
symbolise Bank's unserved commitment to its customers to provide convenience banking.

At Corporation Bank, what motivates us is the passion to excel in banking by maintaining


highest standards of service to our customers, backed by innovative products and services
which makes us one of the leading Public-Sector Banks in the country, catering to a wide
range of customers - from individuals to corporate clients.

Credit risk management is a key concept in banking which is given much attention among
banks across board. This study assessed the credit risk management at Corporation Bank.

The objective of credit risk management is to minimize the risk and maximize bank’s risk
adjusted rate of return by assuming and maintaining credit exposure within the acceptable
parameters. Effective credit risk management is essential to the long-term success of any
banking organization; since it protect the shareholders money and prevents most Banks from
going on bankruptcy. If not properly managed, it may lead to the collapsing of the credit
market and most companies. It is therefore justifiable because it helps Banks to verify
whether demographic and behavioural characteristics such as age, sex, occupation, marital
status and amount collected among others determines the creditworthiness of a borrower.

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II. NEED OF THE STUDY

The project helps in understanding the clear meaning of Credit Risk Management in
Corporation Bank It explains about the credit risk scoring and Rating of the Bank.

The Business of lending is gradually becoming a major target for many banks, as a result
there is high competition among the financial institutions in India leading to default of most
loans. In order to raise the quality of giving loans and reduce the risk involve in giving loans,
credit scoring models have been developed by banks and researchers to improve the process
of assessing credit worthiness during the credit evaluation process. This study uses historical
data on payments, demographic characteristics and statistical techniques to construct logistic
regression model (credit scoring models) and to identify the important demographic
characteristics related to credit risk.

III. STATEMENT OF THE PROBLEM

Credit risk has been in the news recently for the bad reasons. It is the risk arising due to the
inability or the unwillingness of a counter party to honour its financial obligation. This leads
to default and losses for those extending credit. The credit loss in reality is a worst-case
scenario that can be reduced or offset by collateral netting or recoveries. It can appear in the
form of direct credit risk, trading credit risk, contingent credit risk, correlated credit risk,
settlement credit risk or sovereign credit risk.

The exposure to credit risk continues to be the leading source of problems in the banking
industry and as a result needs to be managed. Credit risk is identified as a core pillar for the
viability of banks and credit institutions.

IV. OBJECTIVES OF THE STUDY

• To know the different methods available for credit Rating and understanding the
credit rating procedure used in Corporation Bank.
• To gain insights into the credit risk management activities of the Corporation Bank.
• To know the RBI Guidelines regarding credit rating and risk analysis.

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V. SCOPE OF THE STUDY

The project is carried out in corporation bank NR colony branch. The study only includes
the credit risk management procedures under credit department of corporation bank. This
study does not include deposit service of corporation bank. Besides this study does not
include the services of other private and public commercial banks and non-banking
institutions.

VI. METHODOLOGY

DATA COLLECTION METHOD

Primary data: Primary data will be collected through personal interview by direct contact
method. Face to Face conversation with the respective officers and staffs of Corporation
bank NR colony branch. And questionnaire will also be made.

Secondary data: The data will be collected from the Books, Magazines, Annual reports and
Internet.

SAMPLING

• Only one branch has been taken as sample size.


• The sample size for the project will cover 100 respondents from Bangalore NR colony
branch.

VI. PLAN OF ANALYSIS

The data will be analysed and interpreted descriptively both quantitatively and qualitatively.
Some information will be presented in tables, and graphically with bar graphs, pie charts,
line graphs among others.

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VII. LIMITATIONS
There were several challenges relating to the success of the study. The following are few
among others;
• Unwillingness on the part of the bank concerned to give private information relating
to their customers.
• Limited access to extensive data set of variables.
• Confidential information was not disclosed by respective personnel of the department.

IX. CHAPTER SCHEME

Chapter No. Name of Chapter

Chapter 1 Introduction

Chapter 2 Industry profile and Organization profile

Chapter 3 Review of literature and Research design

Chapter 4 Data Analysis and Interpretation

Chapter 5 Summary of Findings, Conclusions and


Suggestions

Bibliography

Annexure

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